Jumbo loans for residential homes, the term used for loans of more than $417,000 or for those that prompt serious eye-brow raising, practically ground to a halt after the financial meltdown of 2008, The Chicago Tribune reported Friday.
"For a long time, it was, 'Oh, God, wait and see what happens with the mortgage,' " said Matt Farrell, managing partner of Urban Real Estate in Chicago.
But in June along the Chicago-area's affluent North Shore, 94 homes priced at $1 million or more were sold, the best month since August 2007, the Tribune said.
What has changed is that banks now trust the collateral of a pricey piece of property.
During the downturn, banks were loath to get stuck with any property, let alone one that had 16 bedrooms, a six-car garage and a swimming pool.
Increasingly, however, "the banks have a renewed confidence in the collateral," Farrell said.
Collateral, it might be said, has a practical definition. It is not only an asset that can be seized if a loan goes into default. It is an asset that can be seized and then sold for a fair price if a loan goes into default. It is that second step that has been missing for a while.
But those mortgage brokers limit loans they will buy to $417,000. The loans that are larger than that are often held by the bank that writes the contract, meaning the local bank holds onto the risk.
"The jumbo market we have now was created in 2009 after the crash and is very conservatively underwritten," Guy Cecala, chief executive officer and publisher of Inside Mortgage Finance told the Tribune.
"The good news for jumbo borrowers is in terms of underwriting or choice, the market is the best it's been in the past five years," Cecala said.